If you are interested in acquiring some finances for certain purposes, you would usually have two options to choose from – a personal loan or a traditional loan. Even though it seems they differ only in the terms of amounts offered for taking out, there is much more in terms of their differences for you to consider and base your decision on.
To begin with, let us talk about a payday loan in detail. This is usually understood as a short-term credit which is given for up to one month or 30 calendar days under relatively high interest rate with the borrower’s obligation to repay once he or she receives a paycheck. Place of employment and thus the salary here plays the vital role in the decision to provide an applicant with payday loans or not.
How To Decide Which Type Of Loan To Take Out
If you are stuck with the problem of which loan to take out, we will help you understand the main differences between the two. The basic question one has to answer in the first place would be the purpose of financing. Hence banking institutions do care about the purpose of financing and usually give out only loans specially designed for a certain thing like car and mortgage loans.
Once you know the answer to the first question, you might also want to consider the following distinctions of the mentioned financial instruments:
- loan amount: personal loans have a rather low amount to take out which typically ranges from as much as you may require and up to $500. As for bank credits, the situation is radically different. These institutions lend large sums of money and usually are not that flexible when it comes to the sum negotiations;
- interest rate and repayment period: each $100 borrowed as a payday loan can cost up to $15-$20. When calculating this interest rate from an annual perspective, it comes up to $400. This obviously makes proper bank credits for a low-interest rate more beneficial in the long-term perspective;
- fulfillment of loan requirements: in case of a personal loan, one does not have to undergo a thorough credit check. Otherwise, he or she should meet rather easy requirements: being at least 18 years old, having a resident status in the US and having a stable source of income. For banking institutions, this date will never suffice as the risk they undertake by lending larger amounts of money also rises. Therefore, they have to be sure that you are able to repay the taken out sum of money.
To wrap things up, the decision as to which loan one has to take out originally stems from one’s objective. In case of money are supposed to be used for some long-term period of time with a specific purpose like buying property or a car, then a bank loan will suit better. Otherwise, one may opt for a personal loan which will satisfy the needs within $500 and will be repaid as soon as the paycheck comes.